That brief prior period is the only other experience the central bank has had with shrinking its balance sheet, leaving little empirical evidence to draw on when it comes to calculating its effects. This process is similar to the one the Fed used when it last engaged in QT from 2017 to 2019, albeit at a faster pace. Those caps are scheduled to rise to $60 billion and $35 billion, respectively, in September. With QT, the Fed stopped reinvesting up to $30 billion in maturing Treasuries and $17.5 billion in maturing MBS every month, passively shrinking its assets as those securities "roll off" without being replaced. When QE ended, the Fed reinvested any maturing securities to maintain the size of its balance sheet. This entailed ending QE in March and then beginning QT in June. In response to inflation running well above its long-run target, the Fed began unwinding its accommodative monetary policy this year. And when it comes to the reverse process of shrinking the Fed's balance sheet, typically referred to as quantitative tightening (QT), economists know even less. But there is still debate among economists over how and how well it works. With its return during the pandemic, QE seems to have become a more routine part of the Fed's crisis toolkit. It was one of the then-unconventional monetary policy tools the Fed employed in reaction to the Great Recession. The Fed first engaged in this type of balance sheet expansion, popularly known as quantitative easing (QE), more than a decade ago. As a result of these purchases, the size of the Fed's balance sheet more than doubled from about $4 trillion prior to the pandemic to nearly $9 trillion at the start of 2022. Treasury bonds and mortgage-backed securities (MBS) by injecting reserves into the banking system. It reduced its interest rate target to near zero and purchased large quantities of U.S. When the COVID-19 pandemic hit the United States in early March 2020, the Fed quickly stepped in to limit the economic fallout.
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